Comparative Study of IND AS with corresponding AS (Indian GAAP) & Others
Contents / Pg. NoAbbreviations used / 1
Chapters 1 / Introduction / 3
Table 1.1 / IND AS TO CORRESPONDING AS/ GUIDANCE NOTE (GN) / 9
Chapter 2 / PARA WISE COMPARATIVE STUDY OF IND AS I PRESENTATION OF FS WITH AS 1- DISCLOSURE OF ACCOUNTING POLICIES AND SCHEDULE III OF COMPANIES ACT, 2013 AND OTHERS AS MENTIONED / 13
Chapter 3 / COMPARATIVE STUDY OF SOME IND ASs (other than Ind AS I) / 87
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Appendix A / Companies (Accounting Standards) Amendment Rules, 2016, dated 30.03.16 / 121
Appendix B / Pronouncement , Enactment, AS, GN issued by ICAI books, publication, media report perused for making the study / 212
Abbreviations used
AS / Accounting Standard(s) established by ICAISA / Standard(s) on Auditing established by ICAI
ASB / Accounting Standard Board, ICAI
AOCI / Accumulated Other Comprehensive Income
EPS / Earnings Per Share
FASB / Financial Accounting Standards Board
FVTOCI / Fair Value Through Other Comprehensive Income
FVTPL / Fair Value Through Profit or Loss
GAAP / Generally Accepted Accounting Principles
IAS / International Accounting Standards
IASB / International Accounting Standards Board
ICAI / The Institute of Chartered Accountants of India
IFRS / International Financial Reporting Standards
IFRIC / International Financial Reporting Interpretations Committee (now renamed as IFRS Interpretations Committee) and the Interpretations issued by that Committee
Ind AS / Indian Accounting Standards converged with IFRS
MCA / Ministry of Corporate Affairs
NBFC / Non-banking financial company
OCI / Other comprehensive income
RBI / Reserve Bank of India
Schedule III / Schedule III to the Companies Act, 2013
SIC / Standing Interpretations Committee of the International Accounting Standards Committee and the interpretations issued by that committee
SEBI / Securities and Exchange Board of India
Rule / Companies (Indian Accounting Standard) Rules, 2015
GN / Guidance Note to AS, ICAI
The Act / Companies Act, 2013
Chapter I
Introduction
1.1. In the age of Globalisation, Convergence with IASs /IFRSs issued by IASB, is requirement. More than hundred countries are currently requiring and permitting the use of or have a policy of convergence.
1.2. The MCA issued a notification dated 16.02.15 announcing (Indian Accounting Standard) Rules 2015 for applicability of Ind ASwith the amendments made videCompanies (Indian Accounting Standards) (Amendment)Rules, 2016dated 30 March 2016
1.3. ‘Indian GAAP” or AS are standards notified by the Central Government under the Companies (Accounting Standard) Rules, 2006 (applicable to all companies) vide notification G.S.R.739(E) dated 07.12.06 as amended and to the relevant requirements od the companies act 2013.
Ind AS refers to the accounting standard as specified in the Annexure to the Companies (Indian Accounting Standards) Rules 2015.
1.4. Companies not covered in the Rule
· Banking, insurance and NBFCs have been excluded. As mentioned in the Finance Minister’s Budget speech, it is expected that the implementation date for these companies shall be notified separately.
· Companies whose securities are listed or are in the process of listing on SME exchanges as referred to in chapter XB or on the institutional trading platform without initial public offering in accordance with the provisions of chapter XC of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. These companies shall continue to comply with the existing accounting standards unless they choose otherwise.
· Overseas subsidiaries, associates, joint ventures and other similar entities of an Indian company may prepare their standalone financial statements in accordance with the requirements of the specific jurisdiction provided that the concerned Indian company prepares its consolidated financial statements in accordance with Ind AS either voluntarily or mandatorily if it meets the criteria.
· Companies not covered by the rules shall continue to apply the existing accounting standards prescribed in the Annexure to the Companies (Accounting Standards) Rules, 2006.
1.5. Road Map of Mandatory Applicability
Phase I
Ind AS will be mandatorily applicable to the following companies for periods beginning on or after1 April 2016, with comparatives for the period ending31 March 2016or thereafter:
Ø Companies whose equity and/or debt securities are listed or are in the process of listing on any stock exchange in India or outside India and having net worth of 500 crore INR or more.
Ø Companies having net worth of 500 crore INR or more other than those covered above.
Ø Holding, subsidiary, joint venture or associate companies of companies covered above.
Phase II
Ind AS will be mandatorily applicable to the following companies for periods beginning on or after1 April 2017, with comparatives for the period ending31 March 2017or thereafter:
· Companies whose equity and/or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of less than rupees 500 Crore.
· Unlisted companies other than those covered in Phase I and Phase II whose net worth are more than 250 crore INR but less than 500 crore INR.
· Holding, subsidiary, joint venture or associate companies of above companies.
The Roadmap for IND AS implementation in Banks, NBFC & Insurance companies has been rolled out from 2018-19.
1.6. Voluntary adoption
Companies can voluntarily adopt Ind AS for accounting periods beginning on or after 1 April 2015 with comparatives for period ending 31 March 2015 or thereafter. However, once they have chosen this path, they cannot switch back.
1.7. Deviations
Notified Ind ASs contain a number of deviations from IFRS because of convergence; some differences have resulted into non- compliance with IFRS. A few differences between Ind ASs and IFRSs are because of removal of certain options or alternatives given in IFRS have been minimized. Because of this an Ind ASs entity cannot be treated as non- compliant with IFRS.
1.8. Clarification in the Notification to Open Questions
The notification has clarified many open questions.Some of the clarifications are given below: -
· The date and manner of calculation of net worth has been spelled out. It has been clarified that net worth will be determined based on the standalone accounts of the company as on 31 March 2014 or the first audited period ending after that date.
· Net worth has been defined to have the same meaning as per section 2(57) of the Companies Act, 2013. It is the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation
· It is now clear that Ind AS will apply to both consolidated and stand-alone FSs of a company covered by the roadmap. This is helpful as companies will not have to maintain dual accounting systems.
· It is a relief that an overseas subsidiary, associate or joint venture of an Indian company is not required to prepare its stand-alone FSs as per the Ind AS, and instead, may continue with its jurisdictional requirements. However, these entities will still have to report their Ind AS adjusted numbers for their Indian parent company to prepare consolidated Ind AS accounts.
· All listed companies (except companies listed on SME exchanges) and companies having a net worth of 250 crore INR or more will be required to adopt Ind AS. Companies not covered by the rules will continue to apply the existing accounting standards.
· The requirement to present comparatives implies that companies impacted by phase I will require an Ind -AS compliant opening balance sheet as of 1 April 2015.
· The debate on two of the most significant standards, Revenue Recognition and Financial Instruments has now been settled with them being notified. Interestingly, India will be one of the first countries to mandatorily adopt these standards from 1 April 2015 while the rest of the world will follow from 2017. These two standards will have a significant effect on entities, impacting not only their financial results but also catalysing numerous organisational and business changes.
· There was hope that companies will be given an option to prepare their FSs as per IFRS issued by the IASB (the true IFRS), which has been now ruled out.
· The rules specify that in case of conflict between Ind AS and a law, the provisions of the law shall prevail and the FSs shall be prepared in conformity with it.
1.9. Transition : Carve Outs
There are also certain general differences between Ind AS and IFRS/IAS.The transitional provisions, wherever considered appropriate, have been included
Terminology, used in Ind AS,is not similar to IFRS. The term balance sheet is used instead of statement of financial position and ‘statement of Profit & Loss’ is used instead of ‘statement of Comprehensive income’.
Some of these carve outs diminish comparability of Ind AS with the globally accepted IFRS/IAS. These need to be carefully evaluated , to overcome facilitate comparisons. Some significant carve outs to be considered, are in the areas of negative goodwill arising on business combinations, operating leases with rent escalations, accounting for foreign currency convertible bonds and major breaches of long tenure debt covenants.
1.10.1 Contents in Companies (Indian Accounting Standards) (Amendment)Rules, 2016 dated 30 March 2016 are in Appendix A
1.10.2 Key highlights of the Amendment made are
· Notification of Ind AS 11
· Notification of Ind AS 18
· Ind AS 115, ‘Revenue from contracts with customers’, omitted
· Amendment toIND AS 1regarding - ' Materiality' , 'Disaggregations & subtotals', 'Notes structure' and 'Disclosure'
· Amendment toInd AS 34,‘Interim financial reporting’
· Amendment toIND AS 28, 112 and 110
· Furthermore, the rules also amended existing Ind AS to reflect the amendments made by IASB to the IFRS
1.10.3 The Rules also amendedInd AS 101, ‘First-time adoption of Indian Accounting Standards’, to remove the option to use fair value for investment property as the deemed cost on the date of transition.
1.11 Framework
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The existing Framework for the Preparation and Presentation of FSs (issued by ICAI in July 2000) will continue to remain effective for the existing Accounting Standards as these standards contain references to it. There are certain minor differences in the Framework for the existing Accounting Standards and the Framework for the Indian Accounting Standards which are included as Appendix A to the Framework.
In near future, the ICAI proposes to integrate both – the Framework for the existing Accounting Standards and the Framework for Indian Accounting Standards – and issue one Framework for both sets of the Standards.
Appendix A
Note: This Appendix is not a part of the Framework for the Preparation and Presentation of FSs in accordance with Indian Accounting Standards. The purpose of this Appendix is only to bring out the differences between the Framework for the Preparation and Presentation of FSs in accordance with Indian Accounting Standards and the Framework for the Preparation and Presentation of FSs issued in July 2000 for the existing Accounting Standards
Comparison with existing Framework for the Preparation and Presentation of FSs issued in July 2000.
1. Consistency has been given separately in the existing Framework as one of the underlying assumptions. However, in the Framework in accordance with Indian Accounting Standards, the same has been covered under the head ‘comparability’. (Paragraph 24 of the exiting Framework and Paragraph 39 of the Framework in accordance with Indian Accounting Standards )
2. The existing Framework provides that relevance of information is affected by its materiality. However, as per the Framework in accordance with Indian Accounting Standards, relevance of information is affected by its nature and materiality. It provides that in some cases, irrespective of materiality, nature of information could alone determine the relevance of information. (Paragraph 30 of the exiting Framework and Paragraph 29 of the Framework in accordance with Indian Accounting Standards )
3. The Framework in accordance with Indian Accounting Standards provides that balance sheets drawn up in accordance with current Indian Accounting Standards may include items that do not satisfy the definitions of an asset or liability and are not shown as part of equity. The definitions set out in the framework will, however, underlie future reviews of the Indian Accounting Standards and the formulation of further Standards. The existing Framework is silent on this aspect. (Paragraph 24 of the exiting Framework and Paragraph 39 of the Framework in accordance with Indian Accounting Standards)
4. The Framework in accordance with Indian Accounting Standards provides that gains are often reported net of related expenses. Similarly, losses are often reported net of related income. Netting of gains or losses is not there in the existing Framework. (Paragraphs 76 and 80 of the Framework in accordance with Indian Accounting Standards)
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1.11.1 While discharging the attest function it is duty of member of ICAI that AS are implemented in the presentation of FS covered by the audit report. ICAI established ASB way back in 1977. Since then, the ASB has been working relentlessly in this direction by formulating new Accounting Standards as well as by revising the existing ASs, so as to bring them in line with the best international practices.
1.11.2 The ICAI has from time to time issued GN, primarily designed to provide guidance to members on matters which may arise in the course of their professional work and on which they may desire assistance in resolving issues which may pose difficulty. These are recommendatory in nature.ASs have been last issued by the ICAI as on September1, 2014.
1.11.3 As per 143(3)(e) of Companies Act, 2013 (The act) it is required that the auditor’s report shall also state, whether in his opinion , the FSs complying with the AS. Section 2(2) of the act defines the standards of accounting or any addendum thereto for companies or class of companies referred to in section 133 of the act.